Updated, 3:00 p.m. | The soaring stock market was a boon last year to private equity firms looking to sell their holdings to investors. For the Blackstone Group in particular, a series of well-timed sales helped the firm double its profit in the fourth quarter.
Blackstone said on Thursday that its quarterly profit — reported as economic net income, which includes unrealized gains from investments — rose to $1.5 billion compared with $670 million in the period a year earlier. The earnings amounted to $1.35 a share, handily beating the average analyst estimate of 83 cents as compiled by Standard & Poor’s Capital IQ. For the full year, Blackstone earned $3.5 billion, an increase of 76 percent from 2012.
A chief driver of Blackstone’s earnings was a big increase in performance fees as it harvested private equity and real estate investments. Blackstone, the first of the publicly traded private equity giants to report fourth-quarter results, said its performance fees were $1.7 billion in the fourth quarter, 259 percent higher than those in the period a year earlier.
Over all, the firm’s distributable earnings, a metric that reflects the fees it earns, amounted to $820.6 million in the fourth quarter, a 46 percent gain from results in the period a year earlier.
Stock market investors greeted the results with enthusiasm, sending the firm’s shares up 4.2 percent to close at $32.23.
“2013 was a record year by any measure,” Stephen A. Schwarzman, the firm’s chairman and chief executive, said in a conference call with analysts. “Blackstone now exceeds the earnings levels of any other publicly listed asset manager in the world, and possibly any other asset manager in the world.”
Blackstone said it would pay a quarterly dividend of 58 cents a share on Feb. 18.
Last year was a strong one for private equity over all. With stock markets buoyant, many firms were big sellers of their holdings, returning piles of cash to investors. Buyout funds also raised $169 billion last year, the most capital since 2008, according to the data provider Preqin, with half of that money going to the biggest funds.
Blackstone completed four successful initial public offerings in the fourth quarter, including those of Hilton Worldwide Holdings and Merlin Entertainments, which operates the Madame Tussauds wax museums. In the Hilton deal, Blackstone increased the value of its investment by nearly $10 billion.
The rewards of these sales were apparent in Blackstone’s private equity business, where performance fees quadrupled from those in the period a year earlier. Such fees, gained when a firm returns money to investors, typically represent 20 percent of the profits on a deal.
Blackstone’s portfolio of private companies also showed respectable gains, helping the private equity business turn in economic net income of $360 million in the quarter, 82 percent higher than a year earlier.
Though Blackstone made its name doing private equity buyouts, real estate is making up an increasingly large portion of its business, a trend reflected in the fourth quarter.
The real estate segment — which achieved a 279 percent rise in income, to $932 million, in the quarter — “continues to rock,” said Hamilton E. James, the firm’s president and chief operating officer. That segment, led by Jonathan D. Gray, has $79 billion in assets under management, 40 percent higher than a year earlier.
That compares with $65.7 billion in assets under management in the private equity business. Over all, Blackstone’s assets under management increased 26 percent in the quarter, to $265.8 billion.
Not all the news was stellar, however. Blackstone’s credit business, facing a challenging market with investors uncertain over moves by the Federal Reserve, earned 2 percent less profit than it did in the period a year earlier.
In the coming year, with stocks still near historical highs, one of Blackstone’s main challenges will be to find cheap investments. Mr. James said on the call with analysts that some other investment firms were “being very aggressive in terms of prices they will pay.”
He told reporters that the firm was mindful of not paying too much.
“It is frustrating for our guys to keep going after things and keep getting outbid,” Mr. James said. “The thing Steve and I have to do as managers is make sure that frustration doesn’t bubble over into overpaying.”
Source : https://dealbook.nytimes.com/2014/01/30/blackstone-earnings-double-in-fourth-quarter/790